I keep seeing all these "teeny hosts" which have very few subscribers from what one could tell and they are offering free domains with hosting and most charge only $2-3 for shared hosting. How on earth can they afford to do that? I think that is why most small hosts go under within the first year or am I wrong?

My take - you're not wrong. No profit margin - lose money - go out of business.

It's a fishing exercise (not to be confused with phishing). Basically they're throwing a line out with a free meal, and hoping that something bites. Once they have you on the line, they switch up to a bigger hook and use you as bait to land the bigger fish.

If they can get you in the door with a free domain, and that was what it took to push you over to buying their services, then they just upsell on other items.

Hosts are famous for offering a free domain, free SSL Certificate, free shopping cart, free transfer and any number of other combinations.

There's ZERO money to be made on selling domains these days, but lets take the $3.00/month package for instance. It will cost you about $8.00 for the domain name to give away for free. So if the customer stays with you for 3 months, then you have recouped the initial cost of advertising.

So the cost of the domain is written off as advertising.

Granted, MANY small hosts kick the bucket within a few months of operation, especially if they build up a client base quickly with free offers and demanding clients!

You are correct. If they can get new sign-ups for the price of a domain name it's a low cost of acquisition for each new sign-up (compared to the industry standard).
..and an absurdly low monthly rate for hosting often = an absurdly low quality of service.

I'd have no problem offering free domains and so on as I'd just use it as a loss leader, but teeny hosts as Fellow put it don't always have this luxury. Their margins are so thin that overhead overwhelms them unless they have the financial resources to ride it out.

I agree with this. But it is not always the case with web hosts offering cheap hosting packages. Two or three dollars a month is not always unreasonable. It really depends on the bandwidth, space storage, allowed domain to host, and database quotas.

Agreed, but all too often we also see unlimited space and bandwidth attached to these plans.

Getting a free domain with your hosting is a nice offer, but there's a possibility that the host will only let you use the domain with them. That seems to be overlooked at times, and it can cause problems if you want to move to another host so you should always be careful and plan ahead.

That's right, yes. I ever found a web host offering a shared hosting package with the unlimited stuff for as low as $3.45. It was a promotional price I guess. The average cost is around $5 a month.

Offering a free domain name can be a good way to push prospects over the line and turn them into customers, if done correctly.

We only offer free domains when the client choses the 6/12 month billing terms, otherwise you're just losing money.

I think that would be a reasonable way for a company to do things. It would likely prevent much of the loss that occurs. Say you offer a free domain with a 6month pre-paid hosting package possibly non-refundable even.

3.4 Participants may not post or otherwise transmit promotional materials, or any other form of solicitation, except in those forum sections where advertising is expressly permitted.

http://www.hostingdiscussion.com/rules.php

This is just a tad off topic, somewhat but then not really. In reference to the above person's ad, did they really feel they were going to gain an interest by popping in and out just posting their site over the forums? Those are the ones that give me a prime plan that I woud like to spend

I hate unlimited plans. But free domain is helpful i think.

I have to admit a free domain has enticed me into paying the longer terms (along with the fact that I think automatic billing monthly is tedious to keep track of).

Honestly if its too good to be true, its probably gonna fall through eventually. Its like walking on an icy pond in the spring. You might get out to the middle but when it breaks you're far from the edge and in dangerous waters.

Teeny host with cheap hosting and free domain just isn't trustworthy sounding.